Retirement. It’s a daunting word, and it’s even more daunting the closer you get to retiring. There are lots of physician retirement strategies that can prepare you for the big day, but which is the right fit for you? One option to consider is locum tenens. With good planning, locums can be a valuable addition to your late-career physician retirement strategy. Here’s how.
Locums is flexible and helps reduce taxation
According to Dr. Richard Salsman, who left private practice as an OB/GYN to work locum tenens full-time, locums offers more freedom and many more tax breaks, making it a good option for retirement.
“I’m not making any more money, but everything is tax deductible,” he says.
The flexibility of locums allows Dr. Salsman to maximize his retirement plan, working as much as he wants. While making the leap from a corporate retirement plan to an individual plan may sound intimidating, Dr. Salsman says it’s changed very little about the way he saves. He transitioned from his previous 401k to his own individual 401k.
“I just make sure that when I get a paycheck I take half of it and I put it away, and then whenever it’s time to do my quarterly taxes, I pay my taxes and then I make a quarterly contribution to my 401k as well,” he says.
Dr. Salsman says he works with a CPA he trusts and recommends talking to someone who can give good financial advice when planning for retirement.
Locums can help you maximize your contributions
The corporate structures you can set up as a locums physician give you lots of advantages in your physician retirement strategy, says Colin Wiens, a partner and financial advisor at Larson Financial Group. One structure is an S Corp.
“You’re able to split your income, your revenue, your LLC, or your S Corp income into what you actually pay yourself with a W-2 and then pay the rest as a distribution,” Wiens says, adding that that distribution helps you to avoid FICA taxes and Medicare taxes once you reach the social security maximum.
Wiens says that with an S Corp, you’re able to fund the $56,000 maximum if you’re under the age of 50. “If you do an individual 401k, you can have less earned wages and still fund that maximum $56,000 versus if you are just a Sole Prop or even an LLC that’s taxed as a Sole Prop,” Wiens says.
Dr. Jim Mock is an emergency medicine locum tenens physician who uses a corporate structure for his finances. He also has college savings funds, a money purchase pension plan, and an SEP to maximize his retirement. Dr. Mock says that funding your own retirement is a definite give and take.
“Some companies will match your funding into your pension plan, and that’s an excellent benefit when you work for them, but generally those companies will pay you much less,” he says.
One of the things he likes best about locums is the ability to be responsible for his own plan.
“Whatever I put in is what I get,” Dr. Mock says. “I know guys who are socking away $40,000 a year in a pension plan. That’s a lot of money a year to be putting in a pension plan … if you structure it properly and you’re a good investment guy, you could put away $40,000 a year if you want to.”
Locums can help you diversify your physician retirement strategy
Psychiatrist Dr. John Hennessee does locums part-time to supplement his retirement funds. Locums is one of the ways he diversifies his retirement plan.
“Any money I earn as a locum really gets paid to the C Corp, and then from there the C Corp has some paper holdings and holdings of other investments,” he says.
In addition to locums, Dr. Hennessee puts cash investments into IRAs and invests in real estate. While most of his income comes from his work as a physician, he hopes to eventually rely entirely on passive income.
Dr. Hennessee believes that though saving is good, it’s impossible to accrue enough for retirement if you’re saving alone.
“Even in an IRA, you have to save so much and then it’s a gamble on what the markets are doing at the time you choose to retire and what they do after that,” he says. “I think the goal is to try to get the money to work for you in a way that is better than just praying that the markets are going to go up over time.”
Locums is one way many physicians are getting that money to work for them.